Market fundamentalism, statism, and community governance

Brad DeLong writes,

How economists use the neoclassical benchmark:

  • At Chicago: Assume that the economy is at the neoclassical benchmark, and demonstrate that whatever exists is, in some subtle sense, constrained Pareto-optimal efficient–except where ham-handed government intervention has caused messes.
  • At Berkeley: Investigate the deviation from the neoclassical benchmark that can be caused by one single but significant market failure, demonstrate that this deviation matches up to some important feature of the real world, and demonstrate that a clever, subtle, and strategic government intervention can move us to a situation that is constrained Pareto-optimal.

If we were to be unkind, we would call these the market fundamentalist and the statist approaches (in Brad DeLong’s case, a social democratic statism). We can add a third approach, community governance.

  • Investigate the deviation from the neoclassical benchmark, demonstrate that this deviation is causes by badly designed government and market institutions that have crowded out community governance. To address this failure, develop institutions and property rights that support community governance as a complement to markets and governments. Note, however, that effective community governance is usually based on insider-outsider distinctions, between Us and Them.

For an introduction to community governance, see

Ostrom, Elinor. Governing the Commons : The Evolution of Institutions for Collective Action. Cambridge: Cambridge University Press, 1990.

Ellickson, Robert C. Order Without Law : How Neighbors Settle Disputes. Cambridge: Harvard University Press, 1994.

You may also want to take a look at

Boehm, Christopher. Hierarchy in the Forest: The Evolution of Egalitarian Behavior. Cambridge: Harvard University Press, 2001.

For researchers doing interesting related work, see the list of network members from the Norms and Preferences Network.


2 thoughts on “Market fundamentalism, statism, and community governance

  1. Lars, I would extend the unkindness to your third approach and call its proponents the community governance fundamentalists.

    Although social democracy is not my cup of tea I prefer to remain an anonymous non-voting citizen in a big social democracy than become an active neighbor in a participatory conversational bottom-up etc local community. What would be the place for us radical individualists in community-based societies? We would be the ultimate outsiders in an insider-outsider world. Ouch.

  2. Marcelino,

    Point taken. Village life can be truly oppressive. However, life in society or in any organization would not be possible without community governance mechanisms (norms, trust, altruistic punishment). I don’t see social capital/community governance fundamentalism as a much of a problem among economists. It is quite widespread among Greens, who tend to underestimate the role of property rights.

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